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Analysis: 'Beige Book' strikes rosier tone

Tim Mullaney, USA TODAY
3:03 p.m. EST January 16, 2013

In this Thursday, Oct. 4, 2012, photo, a Hyundai Elantra is seen inside of a Hyundai car dealership in Des Planines, Ill. Major automakers are reporting Thursday, Nov. 1, 2012, that sales increased for October despite losing three days of business to the punishing rain and wind from superstorm Sandy. (AP Photo/Nam Y. Huh) ORG XMIT: NYBZ131(Photo: Nam Y. Huh AP)

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As always, the language of the Federal Reserve's "beige book'' report on the economy was, well, beige.

But underneath the report's familiar lack of specifics, the tone of the central bank's report on the economy was a little rosier than usual.

The report says a large number of cyclical industries are either gaining momentum or at least — in the case of the auto business — holding on to most of the acceleration they had built earlier in 2012.

Housing is strengthening, the Fed says, with construction picking up in 11 of 12 Federal Reserve Districts; the exception is Kansas City. Tourism is looking strong, with the eight districts that commented on the vacation business all saying vacation spending held steady or grew, and hotel reservations for business travel in districts like Boston look strong well into this year.

Employers report some spot labor shortages in high-demand fields like energy and technology, and manufacturing held its own, despite the fiscal cliff and some problems reported among companies that export to financially-strapped Europe.

"Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report, with all twelve Districts characterizing the pace of growth as either modest or moderate," the Fed said. "Since the previous Beige Book (Nov. 28), activity in the New York and Philadelphia Districts rebounded from the immediate impacts of Hurricane Sandy. Growth in the Boston, Richmond, and Atlanta Districts appears to have increased slightly, while the St. Louis District reports some slowing."

By contrast, in November the Fed reported notable problems in the Boston, New York and Philadelphia districts, thanks partly to Sandy, and described nationwide growth as ``measured.''

The biggest takeaway from the report may be the limited impact of the fiscal cliff, as Congress and President Obama made a deal on tax hikes before the expiration of a series of tax cuts passed under both Obama and President George W. Bush.

The Beige Book reports that businesses were properly spooked by the cliff – capital spending fell for many, and industries like defense manufacturing and management consulting either shrank or delayed hiring.

But consumers slowed down only a bit, and may have resumed spending quickly. The Fed noted that a major New York retailer, which it didn't name, reported an upturn in sales within days of the deal in early January.

Overall, consumers boosted spending at Christmas, albeit less than retailers in some parts of the country expected. And with sales of housing, cars and vacations still rising, consumers don't appear to have been unduly scared by the noise from Washington.

But the report comes too soon after increases in payroll taxes for workers and income taxes for families making more than $450,000 a year to assess what consumers may do once they have less discretionary income.

The Beige Book, as always, comes with caveats. The most important are about the labor market. Hiring conditions were mostly little changed since November — that's consistent with business' go-slow attitude on capital spending and expansion before the fiscal talks in the capital are complete. There's still little sign that workers who are not computer programmers or in the energy business have the bargaining power to get bigger raises, the Fed said. That's been true ever since the recession.

But the Fed's collection of anecdotes, which comes out eight times a year, points mostly in a positive direction this time. The U.S. recovery appears to be gaining ground, a little bit at a time.